Is your accountant just ticking compliance boxes or truly advising you? In this critical episode, Darren Vardy reveals the dangerous gap between compliance and advisory services. Learn about a director who nearly lost $1 million because a DPN was simply readdressed without urgency, discover why accountants must pivot from compliance to advisory when cash flow issues arise, and understand the importance of quarterly touchpoints. Darren explains why insolvency practitioners serve as trusted advisors to accountants and how proper advisory relationships can prevent catastrophic outcomes.

KEY TOPICS COVERED:

• The critical difference between compliance and advisory services • Why compliance is important but not sufficient for business survival • Case study: Director nearly losing $1M due to readdressed documents • The role of accountants as registered offices and ASIC agents • Why quarterly BAS returns provide perfect advisory touchpoints • How to identify warning signs in lodgements and cash flow • The rise of online accounting tools (Xero, MYOB) and compliance ease • Why business owners see advisory as a cost rather than investment • Insolvency practitioners as trusted advisors to trusted advisors • When accountants should reach out for specialist insolvency advice

KEY TAKEAWAYS:

✓ Compliance is essential but advisory services prevent business failure ✓ A director nearly faced $1M liability because documents were just readdressed ✓ Accountants acting as registered offices must understand their critical role ✓ Quarterly BAS lodgements provide natural touchpoints for advisory conversations ✓ Online accounting tools have made compliance easier but advisory more important ✓ Business owners often see advisory as a cost and avoid engaging accountants ✓ Accountants see warning signs first through compliance work ✓ Insolvency practitioners provide specialist expertise to general accountants ✓ Early discussions with insolvency specialists cost nothing and can save businesses ✓ Proactive accountants who pivot to advisory save their clients from disaster

Compliance versus advisory.

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The critical difference

for business survival.

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Welcome to IO Insolvency Options

with Darren Vadi, the managing

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Director of Insolvency Options

and a registered liquidator.

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With over 30 years of experience helping

businesses and individuals navigate.

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Financial challenges.

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In today's episode, Darren explores

the crucial distinction between

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compliance and advisory services

revealing why accountants must be

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more than just compliance officers.

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He shares a shocking case study

where a director nearly faced

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$1 million in personal liability

because important documents for

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simply Readdressed without urgency.

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You'll learn why quarterly

touch points are essential.

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How to identify warning signs in

bass returns, and why insolvency

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practitioners serve as trusted

advisors to trusted advisors.

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I'm your co-host, Anthony Pearl.

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Let's dive into unlocking

more about insolvency

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Darren Vardy: options.

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Anthony Perl: Darren, I want to talk

to you about subject that we've touched

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on in previous episodes a little bit.

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But perhaps not gone

into the detail of it.

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Compliance versus advisory, which

is a big thing in the accounting

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world these days, but I think it's an

even bigger thing for businesses to

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understand where they lie with their

accountants, are they advisors or not?

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And it's a huge factor, I imagine,

for where you come into a business.

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Darren Vardy: Yeah.

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With the taxation rules that are

out there, a lot of accountants

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have become compliance focused.

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Don't get me wrong.

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Compliance plays a very important role,

particularly these days where failure

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to comply with certain things can result

in director's personal exposure, you

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know, under the director penalty regime.

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So compliance is an important

part of business, making sure that

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the basses are lodged on time.

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The iass are lodged on time.

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Irrespective of whether the cashflow is

there to actually make the payments, but

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if the cashflow isn't there to make the

payments, that's when the advisory piece

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kicks in and that's where the, in my view,

the accountants need to be asking the

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questions is to, Hey, what is going on?

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You haven't got the cashflow

to afford to make the payments.

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On these compliance issues,

is it a temporary issue?

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When will it be available?

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Do we need to have a better look

at your business and make sure

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that it is just a temporary issue?

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It's not a systemic issue, and that's

where, in my view, the accountants

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and the advisors need to be able to

identify those little issues and then

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pivot from compliance to advisory as

required for their clients and be a

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little bit more proactive with that.

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Anthony Perl: Yeah, I mean, I

think it's such an important thing.

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And do people even realize that there

is a difference between the two?

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Talk to me about some of the ramifications

where you've seen this actually happen,

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where you've got accountants, they're

ticking the boxes, they're doing all

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the things, what they're required to

do from a compliance point of view,

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but that gap to what is advisory

is significant and has an impact

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Darren Vardy: where we've seen it in the

past and you know quite often, directors,

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shareholders are quick to blame.

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People for failure as opposed

to take self-accountability.

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And unfortunately, the target, the easy

target is the accountant or the advisor.

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But we've seen instances where there

is merit in that, where businesses

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have been trading at losses for 2,

3, 4 years in a row and the directors

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have said, well, hey, our accountant

has never pulled us up on this.

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Now we've advised the directors,

well, hey, you've traded whilst

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insolvent, you've traded a

loss for three or four years.

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You could be potentially

exposed for insolvent trade.

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And quite often they say, well, why

hasn't my accountant told me that?

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Why hasn't my accountant

raised the issue of.

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The fact that I'm trading whilst, uh,

that I'm trading at a loss, that I've been

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trading at a loss for a couple of years.

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My response to that is, well, you know,

you as the owners of the business should

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know your numbers, and if you don't know

your numbers or you're not confident

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with your numbers, that's where you

need to engage better and more often

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with your accountant to make sure that

you don't fall foul of a situation

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and end up being personally viable.

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So I think it's a two way sword.

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You know what I mean?

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I think there needs to be accountability

from the accountants to pick up and

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raise these issues, but the directors

and shareholders also need to a little

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bit of accountability as well to say,

Hey, I really need to name my numbers,

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and if I don't, that's where I need the

advice and I need to get the advice.

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Because the exposure is

not to the accountant.

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The exposure is to V

directors for inso trading.

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And

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Anthony Perl: I know you've got Ara

story though of an accountant that

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did tick the compliance box by posting

a legal notification, but could have

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been done in a slightly better way.

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Darren Vardy: Yeah, well look, you

know, quite often accountants, and

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this is where there is potentially, I

think in could be a risk to accountants

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quite often accountants not only act

as a tax agent and manage compliance,

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but they also act as the asset agent.

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Now when being served with legal

documents, legal documents are always

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served on the registered office.

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And the majority of times where the

accountant is acting as the ASIC agent,

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it's the accountant's office that is

the registered office for the company.

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So quite often you'll find that it'll be

the accountant or the accountant's firm

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that will receive legal documents now if

they're not acted upon in a timely manner.

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Quite often, you will find

that the business for which

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it relates can be prejudice.

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And one example of that, as you indicated,

was a director penalty notice was an

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accredited statutory demand was issued.

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To the accountant's office on behalf

of the tax office and the receptionist

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received the mail in and simply

readdressed the documentation received

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to the director's personal residence.

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Now, the director just happened to be

overseas or was going overseas at the

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time that the accountant received the

documentation, and when that director

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had returned from being overseas on a

weekend when they opened the mail from the

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accountant, they'd actually realized that.

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The creditor statutory demand

and the director penalty

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notice expired the next day.

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Now, that left the director with

no alternative whatsoever, but to

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appoint an external administrator.

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To give him some breathing space in

respect to the demand and to avoid any

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personal liability under the director

penalty notice now that appointment

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occurred and then the strategy began,

whereas, you know, if the accountant

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contact had have been told by the

receptionist or if they had a.

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Seen the documentation that came through

the accounting contact could have

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phoned the director of the company and

say, Hey, we've got these documents.

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I need to get these to you as a matter

of urgency, scan, email 'em across fax.

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I dunno if people use faxes anymore,

but you know, get it to the director.

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And the director would've had three

weeks, essentially, or nine, three weeks

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to understand what the documents mean.

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Look at the business to see whether

there was a way of entering into

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a repayment arrangement or in fact

getting the debt paid or putting a

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strategy around getting some advice

prior to appointing an administrator,

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which may have say, some costs of the

process as opposed to the only option

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being is to appoint an administrator

and then try and quickly catch up and

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do all the strategy after the event.

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Now, likely enough.

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F this business successfully did

a deed of company arrangement and

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provided a very good return to its

unsecured creditors, which was in

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excess of 65 cents in a dollar.

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However, that was only off the back of

the circumstance of that business where

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they were in the process of selling the

business as a part of their business,

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as a going concern, which would provide

the return back to the creditors.

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Whereas the alternative there would've

been if the director had not received

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the document and not acted in time, and

the a TO had have wound the company up.

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The outcome would've been that

the sale that was on foot may not

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have been completed whatsoever.

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And therefore there was no funds

to pay creditors, the director

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would've ended up with a personal

liability in excess of a million

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dollars for the outstanding tax debt.

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And so in that circumstance,

the alternative would've been a

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catastrophic position in respect to

the going concern of the business

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and the director's personal wealth.

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Anthony Perl: Huge.

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And the question as well then is

someone finds themselves in a similar

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situation for whatever reason that

they've ended up in this situation.

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There's no extensions are there.

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There's no negotiating and saying, I only

heard about this yesterday and you've

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given me one day, I need more time.

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How do you negotiate around that?

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Darren Vardy: Once you're in

legal demand territory, there

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are strict statutory timeframes.

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Same with the director

penalty notice regime.

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There are strict statutory timeframes

that if you don't act within those

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timeframes, there are no extensions.

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So to answer your question, it is

what it is, and if it doesn't get

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dealt with within the timeframe,

then the consequences what it is.

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You know, so for the instance,

the directors will be then be

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personally liable with the expiry

of the credited statutory demand.

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The creditor will proceed

to wind the company up.

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Anthony Perl: What happens in a

lot of the cases that you see?

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You know, we talk about this one

particular case where it happened

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and they kind of added day to turn it

around, and that managed to happen.

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But I imagine there's other situations

where it's not been as successful.

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Darren Vardy: A lot of the other

situations we are faced is that the

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only real alternative is to just

simply appoint a liquidator, and the

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liquidator then looks to realize the

assets for the benefit of the creditors

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to the best of their ability at that

time, which ultimately is the closure

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of the business potential sale.

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If the liquidator has the ability

to sell as a going concern,

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that is genuinely not common.

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Anthony Perl: So let's go back

a little bit to where we started

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this in terms of the advisory

versus compliance angle of things.

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I mean, how often do you see that in

businesses that you've been dealing

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with, that there is a degree of

compliance that's been had, and I'm

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not, you know, just talking about

accountants here, but in terms of the

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business workings of things, they've

ticked the boxes, but they've not

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really looked under the hood properly.

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They've not really examined the issues.

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Darren Vardy: And that's where I sort

of get back to my comments earlier is

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that I think now business owners are

more conscious of being compliant.

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I think over the last number

of years and the tools that are

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available with the online accounting

tools zero my and the like.

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It's easier for businesses to be compliant

and one of the tax office manager has

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been is make sure you're compliant.

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If you can't pay, we can enter

into a repayment arrangement.

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The focus on from the tax office has been.

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Let's get lodged so we know what the

debt is, and then if you can't pay the

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debt, let's work out a way that we can.

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And that's been good for business.

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But the focus has been on compliance.

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So we've seen that business compliance

with the statutory lodgements increase

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has significantly over the last decade.

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Getting back to the advisory piece, a lot

of small businesses see it as a cost, so

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they're reluctant to incur the time and

seek the advice from their accountants.

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And that's where I think the accountants

will do themselves an injustice.

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If they don't at least reach out

to the client about the advisory

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piece, particularly where they

might see some warning signs.

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And because the accountants will

see the warning signs first in doing

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the compliance for their clients.

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Anthony Perl: And it's a big area

for accountants in terms of talking

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about this whole advisory piece

because as you say, the software

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and things that are now available to

tick, a lot of the boxes is there.

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So the traditional, I just

go to my accountants to get

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my taxes done is still there.

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There's so much that is done

electronically now with all of these

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bits of software and things that it's

natural for them to move into that space

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of being more of an advisory service.

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And it should be a proactive one, not

only about the negative one, right,

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that they should be talking about some

of the possibilities and things that

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you can do to expand the business.

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So it should be seen as not just

a ticking the box in case it's a

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negative, that we want this advisory.

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It should be about being proactive in

other areas to help the business grow.

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Darren Vardy: Yep, this is true.

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An accountant should be having a touch

point with each of their clients at

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the minimum quarterly because batch

returns get done quarterly, right?

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So.

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The touch point is if the client is unable

to lodge their BAAs on time, why not?

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If the client lodges their BAAs on time,

they've got the financial information

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there that they can scan to see and get a

good idea on what their trading is like.

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So they should be looking at that

saying, yes, it looks good, or no.

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Or, Hey, is everything okay

if it doesn't look right?

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Anthony Perl: Tell me from your point of

view, when is it advisable for accountants

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even to just seek advice from someone

like yourself to understand really,

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we've seen some warning signs here.

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Do you engage with them at that point

to steer them in the right direction

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as to what they should be doing?

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Darren Vardy: Yeah, absolutely.

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And that's where, you know, we as

insolvency practitioners become the

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trusted advisor to the trusted advisor.

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Right.

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Our role is, you know, we are a

specialist type of accounting business.

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We deal only with insolvency and

therefore we bring to the table an

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expertise that the general accountant

doesn't have, but also is not expected

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to have either by virtue of the type

of accounting work that they do.

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So I always position myself as that if

you have a client or if you see any of

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those early signs, or even if you've just

got that gut feel that it just doesn't

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feel right, let's have a discussion.

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It costs nothing for a discussion.

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And you know, let's have a look

at the numbers and when we have a

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look at the numbers, if we identify

some issues, then we raise it with

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the client and move forward there.

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Anthony Perl: And that's all we

have time for in this episode.

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But next time on IO insolvency

options, we'll walk through the

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first three weeks of liquidation

and what directors can expect.

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Darren will reveal why he

describes this period as chaos.

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Explaining when directors can finally

breathe again and share what life

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looks like on the other side of

liquidation, it's essential listening

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for anyone facing this process.

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For details on how to get in touch

with Darren and his team on insolvency

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Challenges, please consult the show notes.

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This podcast is produced by my

team at podcast done for you.com

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au.

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Until next time, remember, there's always

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